Deutsche Telekom to Play Role in Telecom Consolidation

Deutsche Telekom aims to maintain its position as Europe’s largest telecommunications service provider based on revenue and to play “an active role” in consolidating the region’s telecommunications sector, Chief Executive Officer Kai-Uwe Ricke said Wednesday.

“Size is important because it’s the only way we can achieve economies of scale,” Ricke said in a speech given at the company’s annual shareholder meeting in Cologne, Germany. “We have to actively shape developments. We clearly do not rule out acquisitions.”

But in the same breath, Ricke warned that the integrated German mobile and fixed-line operator “will not get involved in acquisitions because others are doing the same or because supposedly once-in-a-lifetime opportunities present themselves or because experts with their own agenda advise us to. Deutsche Telekom will only go ahead with an acquisition … if it enhances shareholder value. The return on capital of an investment is the criterion we apply when it comes to strategic portfolio management decisions.”

Those remarks were aimed at shareholders who have followed Spain’s Telefonica, which recently acquired British mobile phone operator mmO2, and who still remember Ron Sommer, Ricke’s predecessor. Sommer went on an international buying binge, amassing debt of more than 65 billion euros (US$82 billion).

Last week, Deutsche Telekom’s mobile subsidiary, T-Mobile International, won approval from the European Commission to acquire Tele.ring Telekom Service, the fourth-largest operator in Austria, for 1.3 billion euros. That’s the German telco’s largest acquisition abroad since the $35 billion purchase of VoiceStream Wireless, now known as T-Mobile USA.

Deutsche Telekom aims to increase sales at its underperforming IT services arm, T-Systems International, by marketing increasingly standardized IT solutions for small and medium-size enterprises, while at the same time acquiring more IT-based major projects and cross-selling telecommunications services, Ricke said.

In response to growing competition from Internet-based companies, such as Skype Technologies and Google, the German network operator plans to provide all of its services on IP technology in the future, according to Ricke. “These companies may well be using our infrastructure but have totally different cost structures from ours; they can produce voice and data services with far lower marginal costs,” he said. “In order to survive in this competitive environment, we have no choice but to shift our own production over to IP.”

Moving rapidly in this direction, Deutsche Telekom will begin testing IP television service this month over its new high-speed network.

-John Blau, IDG News Service

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